Recently, I watched an episode of Nikita, a spy v. spy television drama. In the episode, Nikita is approached by the leader of the evil terrorist syndicate, Gogol, who suggests that they team up to defeat Division, their common enemy. Before responding, Nikita “plays it forward” and talks through the likely scenarios. First, if they cannot defeat Division, then naturally Nikita loses. Second, if they are successful in defeating Division, Gogol would become much more powerful, and Nikita would have a new, even more formidable foe that she would need to fight off. As she would lose either way, Nikita declines Gogol’s offer.
As companies begin to develop new strategies to re-kindle growth, they would do well to remember Nikita’s concept of “play it forward.”
”Playing it forward” is a simple name for scenario analysis. In scenario analysis (also called scenario planning), a company analyzes the different possible outcomes of a strategy to understand all risks and pros and cons of the strategy. Typically, such scenario analysis occurs with large strategic decisions such as acquisitions where two scenarios are fleshed out: a base case and a downside case. When done well, the downside case analysis is crucial to determine the risk of the strategy. And it often creates “trigger points” for a change in strategy or “strategic retreat” if things are not going to plan.
- In one instance, we were considering acquiring a money-losing business. In analyzing the different scenarios, we determined that the downside case was limited; we were buying at such a discount that we would break even if we had to liquidate the whole business within two years. In short, with our downside covered, we made a good one-sided bet (since we could not lose much, we could only gain) and proceeded. The acquisition was a success.
- In another case, we realized that a market entry strategy that made good sense in the base case turned out to be an absolute disaster in the downside case as the particular market had significant and long-term exit costs. We re-assessed our commitment to this new market and decided not to continue.
Besides just considering a downside case, it is important to analyze the success scenario. Assume that the strategy that you have chosen becomes successful. Then, brainstorm about what this future state looks like and what are the consequences of this success.
- If successful, what would your company be required to deliver? Would your company be properly organized to deliver that better than the competition? Would your team be capable of delivering on the promise?
- If successful, would you be able to sustain your differentiation and the competitive advantage? Or would your new strategy just raise the cost of doing business for all supplier companies without differentiating your business in the long term?
- If successful, would you be competing against your current customers or current key suppliers?
In one case, we were half-way through a multi-year product development initiative to introduce a standardized product line in a semi-custom business. We finally had the data to work through a success scenario. By playing it forward, we realized that if we were successful with this initiative the overall business would lose.
- We would have satisfied the corporate staff of our incumbent national customers, but alienated the local and regional teams who had all the power day to day on the ground.
- We would have lowered the barriers to entry in the market, opening the door to smaller, more aggressive, but financially weaker competitors who had until now been excluded from the market.
Faced with this “lose-lose” outcome, we quickly pulled the plug on this initiative.
Before embarking on your business strategy spend the time to think about what the world would be like if you achieved your strategic goals. You certainly want to avoid spending inordinate time and effort only to prove that age-old adage:
“Be careful what you wish for as you may just get it.”